• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

The College Investor

Student Loans, Investing, Building Wealth

  • About
  • Podcast
  • Research
  • Contact
  • Save For College
      • How To Start

      • How To Save For College
      • How To Pay For College
      • What Is the Average Cost of College?
      • What Is A 529 Plan and Where to Open One in Your State
      • How Much Should You Have In A 529 Plan By Age
      • How To Use A 529 Plan For Private Elementary And High School
      • What Are Qualified Expenses For A 529 Plan (And What Doesn’t Count)?
      • The Best Brokers To Open A 529 Plan
      • Tools + Accounts

      • 529 Plans: The Ultimate College Savings Plan
      • 529 Plan Contribution Limits
      • Prepaid Tuition Plans | What To Know
      • Understanding And Using 529A ABLE Accounts
      • Using A Roth IRA To Save And Pay For College
      • FAFSA Deadlines for Financial Aid
      • CollegeBacker Review
      • Upromise Review
      • UNest Review
      • Other Options

      • Student Loan And Financial Aid Programs By State
      • The Guide To Military And VA Education Benefits
      • How To Fill Out The FAFSA
      • How To Find College Scholarships
      • The Best College Scholarship Search Websites
      • How To Find Grants To Pay For College
      • Pell Grants: What They Are And How To Qualify
      • Understanding Federal Work-Study
      • How To Use A 529 Plan If Your Child Doesn’t Go To College
  • Student Loans
      • Borrowing

        • How Student Loans Work
        • How To Apply For A Student Loan
        • Best Student Loans And Rates In January 2023
        • 10 Best Private Student Loans Of January 2023
        • Best Student Loans To Pay For Graduate School
        • Best Student Loans To Pay For Medical School
        • Parent Loans To Pay For College
        • No-Cosigner Student Loan Options
        • Guide To Income Sharing Agreements (ISAs)
        • Best International Student Loans
      • Get Out Of Debt

        • Best Student Loan Refinance Companies In January 2023
        • Best Student Loan Repayment Plans
        • Best Student Loan Refinancing Bonuses And Promotional Offers Of January 2023
        • Student Loan Forgiveness Programs (The Complete List)
        • The Full List Of Student Loan Forgiveness Programs By State
        • Public Service Loan Forgiveness (PSLF)
        • Top Student Loan Scams
        • Average Student Loan Monthly Payment
        • Average Student Loan Debt By Year
      • Reviews

        • Credible Review
        • Splash Review
        • Ascent Review
        • Citizens Bank Review
        • Commonbond Review
        • Earnest Review
        • ELFI Review
        • Laurel Road Review
        • LendKey Review
        • SoFi Review
  • Investing
      • How To Start

        • How To Start Investing in High School
        • How To Start Investing In College
        • How To Start Investing In Your Twenties For 22 – 29 Year Olds
        • How To Start Investing In Your 30s For 30 – 39 Year Olds
        • How To Start Investing With $100 Or Less
        • How To Give Kids The Gift Of Stock
        • What Is Dividend Growth Investing
        • IRA Rollover Chart
      • Tools + Accounts

        • Best Online Stock Brokers
        • The Best Traditional And Roth IRA Accounts
        • The Best Robo-Advisors
        • The Best Investing Apps
        • The Best Places to Trade Options
        • The Best Places To Open A Health Savings Account
        • The Best Solo 401k Providers
        • The Best Self-Directed IRA Providers Of 2023
        • Best Cryptocurrency Exchanges
      • Reviews

        • Vanguard Review
        • Fidelity Review 2023
        • M1 Finance Review
        • TD Ameritrade Review 2023
        • Charles Schwab Review
        • Robinhood Review
        • Webull Review
        • Betterment Review 2023
        • Wealthfront Review
  • Earn More Money
      • Extra Income

        • 20 Best Side Hustles You Can Start Earning With In 2023
        • 53 Side Hustle Ideas To Make Money Fast
        • 100 Ways To Make Money In College
        • 80 Ways To Make Money From Home In 2023
        • 5 Quick Money Making Ideas (That Take Less Than 1 Hour)
        • 10 Interesting Ways You Can Make Money Driving
        • High-Paying Side Gigs That Earn $1,000 or More Per Month
        • The 10 Best Money-Making Apps
        • Paid Surveys: Earn Money For Giving Your Opinion Online
        • 10 Crazy Ways To Make $10,000 You’ve Never Heard Of
      • Build Wealth

        • 40 Passive Income Ideas You Can Use To Build Wealth In 2023
        • 3 Ways To Make $50,000 Per Year Without Working With Passive Income
        • How To Become A Real Estate Investor With Just $500
        • 15 Best Online Business Ideas
        • Residual Income: 7 Super Smart Ways to Build It
        • The Most Common Multiple Income Streams
        • How To Become A Real Estate Mogul With Only $10,000
      • Reviews

        • Fundrise Review
        • RealtyMogul Review
        • FarmTogether Review
        • AcreTrader Review
        • Swagbucks Review
        • Survey Junkie Review
        • TopCashback Review
        • DoorDash Review
  • Personal Finance
      • Banking

        • 10 Best High Yield Savings Accounts Of January 2023
        • 10 Best Money Market Accounts Of January 2023
        • 10 Best Free Checking Accounts In January 2023
        • Best Bank CD Rates Of January 2023
        • 10 Best Business Checking Accounts In February 2023
        • Best Online Banks Of January 2023
        • Best Credit Unions Nationwide Of January 2023
        • Best College Student Checking Accounts Of January 2023
      • Insurance

        • Best Life Insurance Companies
        • Renters Insurance
        • Car Insurance
        • Pet Insurance
        • Umbrella Insurance
        • Disability Insurance
        • Tuition Insurance
        • Travel Insurance
      • Credit Tools

        • Best Budgeting Apps
        • Cash Advance Apps
        • How To Get A Free Credit Score Report
        • Best Credit Monitoring Services For 2023
        • Debt Settlement: Inside The Secret World
        • Credit Repair Explained: Should You Pay For Help?
        • Best Personal Loan Companies And Lenders
        • Online Loan Companies To Borrow From Home
      • Tax

        • Best Tax Software
        • Free Tax Software
        • IRS Tax Refund Calendar
        • Common IRS Questions and Errors
        • Federal Tax Brackets
        • Capital Gains Tax Brackets
        • 401k Contribution Limits
        • IRA Contribution Limits
        • HSA Contribution Limits
  • Forum
  • Search
Home » Money » Budgeting » How To Build An Effective Spending Plan

How To Build An Effective Spending Plan

Updated: November 29, 2021 By Robert Farrington

Tweet
Share
Share
Pin
Email
Print

At The College Investor, we want to help you navigate your finances. To do this, many or all of the products featured here may be from our partners. This doesn’t influence our evaluations or reviews. Our opinions are our own. Any investing information provided on this page is for educational purposes only. The College Investor does not offer investment advisor or brokerage services, nor does it recommend buying or selling particular stocks, securities, or other investments. Learn more here.Advertiser Disclosure

There are thousands of financial products and services out there, and we believe in helping you understand which is best for you, how it works, and will it actually help you achieve your financial goals. We're proud of our content and guidance, and the information we provide is objective, independent, and free.

But we do have to make money to pay our team and keep this website running! Our partners compensate us. TheCollegeInvestor.com has an advertising relationship with some or all of the offers included on this page, which may impact how, where, and in what order products and services may appear. The College Investor does not include all companies or offers available in the marketplace. And our partners can never pay us to guarantee favorable reviews (or even pay for a review of their product to begin with).

For more information and a complete list of our advertising partners, please check out our full Advertising Disclosure. TheCollegeInvestor.com strives to keep its information accurate and up to date. The information in our reviews could be different from what you find when visiting a financial institution, service provider or a specific product's website. All products and services are presented without warranty.

how to build a spending plan

For many people, budgeting feels like a restrictive diet. Money comes in and they shovel money into saving or into debt repayment leaving little to live on. After a few weeks of restriction, they can’t handle it and “binge” where they’ve felt deprived.

We’re partnering with Simplifi to show you that building an effective spending plan doesn’t need to be difficult. 

Approach your spending plan with an open mind and a willingness to embrace technology, and you can find a plan that works for you. Here’s how you do it.

Looking for an app to help you build an effective spending plan? Check out Simplifi here >>

Table of Contents
1. Start With Your Income
2. Enter Your Fixed Expenses
3. Automate Your Savings
4. Keep An Eye On The Leftovers
5. Putting The Plan Into Action
Final Thoughts

1. Start With Your Income

An effective spending plan or a budget always starts with income, not expenses. Most people could spend an unlimited sum of money, but income limits them from that spending. 

To develop a spending plan, you need to know your income. This is particularly important for lower-income people to estimate, but it's important for everyone. Whether you earn $1,200 a month or $12,000 per month, your spending plan depends on your income.

Budgeting apps like Simplifi can help you by recognizing your monthly income. Most people experience small income fluctuations from month to month. Sometimes you work more, sometimes less. These fluctuations don’t need to derail you from building an effective spending plan. You can easily build your plan based on your average monthly income.

However, some people, especially college students, have variable incomes. After earning $7,500 over the summer, they may earn just a few hundred dollars per month during the school year. Folks in these circumstances should do their best to build up savings during their working seasons, so they can cover lifestyle expenses during the rest of the year.

For this case study, we’ll consider a young professional who earns $3,200 per month from her W-2 job (after 401(k) contributions, health insurance, and taxes) and an average of $600 per month from charging scooters. Her average total income is $3,800 per month

2. Enter Your Fixed Expenses

Fixed expenses (also called bills) are expenses that you pay each and every month. Typically rent, insurance, cell phone expenses, utilities, debt payments, and memberships fall into this category.

Since these expenses don’t fluctuate from month to month, you can build your spending plan around these. In this case study, the young professional has the following fixed expenses:

  • $650 - rent for her half of an apartment
  • $100 - half the utilities (including a Netflix subscription)
  • $428 - student loans
  • $379 - car loan
  • $83 - car and renters insurance
  • $15 - cell phone
  • $35 - gym membership

In total, her fixed expenses are $1,690 per month. After accounting for these fixed expenses, she has $2,110 for other expenses.

Although these expenses are called “fixed” expenses they aren’t truly written in stone. Most people can cut back on these expenses by moving to less expensive accommodations, downgrading their car, or canceling subscriptions. 

You can also plan for expenses - these things may not be fixed but you know they will be coming!

3. Automate Your Savings

Effective spending plans incorporate short, medium, and long-term savings goals. Setting money aside for future spending can help you ensure you have access to money when you need it. One of the easiest ways to meet your savings goals is to automate savings. You can set up automatic transfers from your primary checking account to online savings accounts designated for savings goals.

An app like Simplifi can help you figure out how much to set aside for each of your major goals. Once you know the amount, you can set up automatic transfers to ensure you stick to these goals. It can be helpful to schedule these transfers the day your paycheck hits your bank account.

In this case study, the young professional has goals to save for retirement, emergencies, Coachella, a wedding, and snowboarding passes. Based on her goals, she transfers the following funds to other accounts.

  • $500 per month in Roth IRA. This money is transferred to a Roth IRA hosted at a robo-advisor.
  • $400 per month for emergencies.
  • $180 per month for Coachella expenses
  • $150 per month for a wedding account
  • $80 per month for annual snowboarding passes

In total, she puts $1,310 into various accounts. After fixed expenses and savings, the young professional has $800 left over.

4. Keep An Eye On The Leftovers

An effective spending plan gives the planner a lot of freedom within the constraints of income. The Simplifi Spending Plan lets you know what you have left to spend or save, taking into account your income and bills. Some people want to forecast where every penny of this money will go. They may use spreadsheets or traditional budgeting apps to manage money in a detailed way. 

Other people don’t want to bother with detailed categories. They prefer greater flexibility. One month they may spend a lot on groceries (inspired by the Great British Bakeoff), but the next they get take-out ten times. As long as they are on track, they want complete freedom to splurge.

The young professional in our case study falls in between the two extremes. She wants to keep an eye on her eating-out budget because she knows that she knows that can fall into an expensive takeout rut. Aside from her eating-out budget, she likes to create weekend spending budgets to make sure her weekend spending makes sense.

The month in question she spends the following:

  • $57 on restaurants and takeaway (of a $90 budget)
  • $318 on groceries
  • $290 on a weekend getaway with her sister (Venmo transaction)
  • $96 on gas

Overall she spent $761 of her $800 budget.

One of the best ways to keep an eye on spending is to use cash envelopes. However, that solution doesn’t work particularly well in a world of digital spending. 

Apps that track spending can also be a powerful alternative to cash envelopes. For example, Simplifi allows users to create watchlists to keep an eye on their spending. Users can watch their monthly spending, or even set limits for a set time. The app gives alerts as users approach their spending limits.

5. Putting The Plan Into Action

The best-laid plans can go awry if they are unrealistic or unwieldy. A spending plan that looks effective on paper may be hard to implement. If you’re not detail-oriented, you may forget about a bill and overspend in another category.

Even when you have a plan, cash flow management can be a challenge. My preferred approach to managing cash flow is to automate everything. I line up my automatic bill-pay and my automated transfers with the day my paychecks hit the account. Whatever I have leftover I can spend. Unfortunately, this type of automation takes time to put into place, and it may have to be tweaked when cash flow gets tight.

Predictive reporting can help them manage their money without having all the automation in place. Many budgeting apps are starting to build these predictions into the app. The app can remind you of upcoming bills, so you don’t overspend the day before your rent is due.

For example, Simplifi projects your account balance for up to 30 days. The app forecasts all of your bills and accounts for your savings objectives. Then it reports how much money you can spend today, tomorrow, and for the rest of the month. If your bank account is going to dip, you’ll know ahead of time. This can be especially important to track during lower-income months when you don’t have as much disposable income.

Final Thoughts

Spending plans need to be adjusted as your life changes. When you’re young you may live with half a dozen roommates;when your income grows you may cut back on roommates. When you have kids, you may find that most of your discretionary spending gets eaten up by daycare bills. 

An effective spending plan doesn’t have to last forever. Continuously tracking your expenses and making adjustments can help you maintain a useful budget on an ongoing basis.

If you're looking for an app to help you create an effective spending plan and modify it over time, you may want to consider Simplifi. It's an ad-free and feature-rich platform that provides easy budgeting tools and powerful insights.

Get started with Simplifi here >>

Robert Farrington
Robert Farrington

Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.

He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.

He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.

How To Build An Effective Spending Plan
Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, or other advertiser and have not been reviewed, approved or otherwise endorsed by any of these entities.
Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors'. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone's responsibility to ensure all posts and/or questions are answered.
Subscribe
Connect with
I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree
Notify of

I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree

0 Comments
Inline Feedbacks
View all comments

Primary Sidebar

Robert Farrington will teach you how to get out of student loan debt and how to start investing.

Hi! My Name is

America's Millennial Money Expert

Welcome to The College Investor. We're here to help you escape student loan debt so you can start investing and building wealth for the future

Our expert guides, reviews, and more are designed to help you achieve your financial goals.

Want to learn more? See what's in my wallet.

As Featured In

Social Media

Popular Posts

Side Hustling

53 Side Hustle Ideas To Make Money Fast

Best Side Hustles

20 Best Side Hustles You Can Start Earning With In 2023

Crazy Ways To Make $10,000

10 Crazy Ways To Make $10,000 You’ve Never Heard Of

Make $50,000 Per Year

3 Ways To Make $50,000 Per Year Without Working With Passive Income

Student Loan Scams

Top Student Loan Scams

Net Worth of Millennials

Average Net Worth Of Millennials By Age

Ways To Get Student Loan Forgiveness

Student Loan Forgiveness Programs (The Complete List)

529 Plan By Age

How Much Should You Have In A 529 Plan By Age

Passive Income Ideas

40 Passive Income Ideas You Can Use To Build Wealth In 2023

Make Money From Home

80 Ways To Make Money From Home In 2023

Ultimate Guides

529 Plan Guide

529 Plans: The Ultimate Guide To College Savings Plans

Student Loans and Financial Aid By State

Student Loan And Financial Aid Programs By State

Student Loan Advice

The Definitive Guide To Student Loan Debt

Student Loan Forgiveness By State

The Full List Of Student Loan Forgiveness Programs By State

newretirement

How to Start Saving Now: The College Graduate’s Guide to Saving for Retirement

Latest Research

How much to file taxes

Tax Survey: How Much People Paid To File And The No.1 Tax Software They Used

Inflation survey

Side-Hustles To The Rescue: Survey Shows 86% Stressed About Money & Inflation

students choose to work survey

75% Of Students Would Still Choose To Work Even If They Didn’t Have To

Institutional Merit Grants

Who Gets Institutional Merit Grants At Private Colleges?

Resume Student Loan Payments

Survey: Even With Higher Expenses, Most Student Loan Borrowers Are Ready To Resume Payments

Footer

Who We Are

The College Investor is an independent, advertising-supported financial media publisher, focusing on news, product reviews, and comparisons.

Connect

  • Contact Us
  • Advertise
  • Press & Media

About

  • About
  • Our Team
  • Podcast
  • Editorial Guidelines
  • How We Make Money
  • Archives

Social

Copyright © 2023 · The College Investor · Privacy Policy ·Terms of Service · DO NOT Sell My Personal Information

wpDiscuz